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CLS Bank v. Alice: Chasing the rabbit down the Bilski hole.

The Federal Circuit has handed down their en banc decision in the CLS Bank case, and to say its less than definitive would be a gross understatement.  The claims at issue were found unpatentable by a narrow margin, and the differences in positions of the camps was dramatic.  A quick summary follows:

Per footnote 1 of the Rader/Linn/Moore/O’Malley opinion, none of the writings are precedential, only the affirmance.

Lourie/Dyk/Prost/Reyna/Wallach (plurality opinion):
The software claims in question are directed to the abstract idea of escrow and do not add “significantly more” to the abstract idea.  The opinion threatens all software patents by its statement that

Because of the efficiency and ubiquity of computers, essentially all practical, real-world applications of the abstract idea implicated here would rely, at some level, on basic computer functions—for example, to quickly and reliably calculate balances or exchange data among financial institutions. At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility. In short, the requirement
for computer participation in these claims fails to supply an “inventive concept” that represents a nontrivial, nonconventional human contribution or materially narrows the claims relative to the abstract idea they embrace.

Furthermore, since the plurality opinion determines that system claims directed to computers implementing software should be treated the same as the method or medium claims, the plurality determines that the system claims do not have greater patent-eligibility despite being “formally drawn to physical objects.”  The plurality wants to prevent “clever claim drafting” to avoid the restrictions of Section 101, and thus chooses to analyze the system claims for preemption of an abstract idea under the same rubric as used for the method claims.

Following In re Alappat, the system claims are patentable because they recite a special-purpose machine.  The claims do not preempt all uses of the abstract idea of an escrow, and even if some of the broad claims did, some of the narrower dependent claims are in means-plus-function format and thus are limited to specific implementations disclosed in the specification.  This opinion argues that if the plurality opinion is the law, then all existing software patents are invalid:
And let’s be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents.1
1 If all of the claims of these four patents are ineligible, so too are the 320,799 patents which were granted from 1998-2011 in the technology area “Electrical Computers, Digital Processing Systems, Information Security, Error/Fault Handling.” See U.S. Patent & Trademark Office, Selected Technology Report, available at
efh.htm. Every patent in this technology category covers inventions directed to computer software or to hardware that implements software. In 2011 alone, 42,235 patents were granted in this area. Id. This would render ineligible nearly 20% of all the patents that actually issued in 2011. If the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries. There are, of course, software, financial system, business method and telecom patents in other technology classes which would also be at risk. So this is quite frankly a low estimate. There has never been a case which could do more damage to the patent system than this one.

Method and medium claims are not patent-eligible because the recited steps are all inherent in an escrow.  [[DLI Note: I’m not entirely clear on what the difference is between the Rader/Moore position and the plurality position on this point, but it was enough to prevent them from combining to write a majority opinion.  Perhaps someone with a greater understanding of the nuance of Section 101 can chime in?]]

A second opinion by these four judges, arguing that the system claims should be eligible, and asking the Supreme Court to take this case:
It has been a very long time indeed since the Supreme Court has taken a case which contains patent eligible claims. This case presents the opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter.

Judge Newman believes that the Supreme Court was wrong to create an “abstract idea” exception, and that the claims should be found patent-eligible under Section 101.

The plurality erred by giving a broad interpretation to the method and medium claims.  Had the plurality or the court below construed the claims properly in light of the specification and the stipulations of the parties, they would have found the claims to be directed to a special-purpose computer, and thus be patent-eligible for the same reasons as discussed for the system claims in the Rader/Linn/Moore/O’Malley opinion.

My thanks to Domenico Ippolito for his help in preparing this post.

Principal & Chief Innovation Officer

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